What Is the Threshold for Making Tax Digital? [Guide]

Making Tax Digital (MTD) is rolling out on 6th April, which may have already sent you into a panic mode, worrying about whether you’ve got all your paperwork sorted in time.

But here’s the catch: MTD doesn’t apply to everyone. It’s important to understand the tax threshold – the minimum level of income or turnover at which MTD rules apply.

Read on to learn about the MTD threshold and whether it affects you, so you can start preparing on time.

Key points

• Making Tax Digital simplifies tax reporting 🧮
  MTD is the UK government’s initiative to move tax reporting online, reduce errors, and make record-keeping easier. Businesses use MTD-compatible software to keep digital records and submit VAT and Income Tax returns, streamlining the process.
• VAT threshold matters for MTD compliance 💷
  If your VAT-taxable turnover exceeds £90,000 over a rolling 12 months, you must follow MTD rules. This threshold applies only to taxable sales, not to profits or VAT-exempt income. Monitoring your turnover monthly is key to staying compliant.
• Exemptions exist for certain cases 📝
  Businesses can be exempt from MTD for VAT or Income Tax if circumstances make digital reporting impractical. Some exemptions are automatic, others require an application to HMRC.
• Income Tax MTD starts gradually 🗓️
  Self-employed individuals or landlords with qualifying income over £20,000 will adopt MTD for Income Tax from April 2026 onwards, depending on their income level. Only self-employment and property income count toward the threshold.
• ANNA makes MTD stress-free 💻
  ANNA helps you stay compliant effortlessly by connecting your banking, invoices, bookkeeping, and tax filing in one app. It calculates taxes, sends reminders, and submits VAT, Corporation Tax, and Self Assessment returns directly to HMRC, saving time and preventing errors.

What Is MTD?

MTD is the UK government’s initiative to make tax administration easier, more accurate, and fully digital.

MTD started with VAT in April 2019, and HMRC is expanding it to Income Tax for self-employed individuals, starting in April 2026.

What is the current MTD threshold for VAT?

If your business is VAT-registered, and your taxable turnover exceeds £90,000 over any rolling 12-month period, you must follow MTD rules.

In practice, it’s a bit more detailed.

This threshold refers to your VAT-taxable turnover, not your profit, and it includes:

• Sales of goods and services that are subject to VAT (standard, reduced, or zero-rated)
• Income generated from your core business activities

It doesn’t include VAT-exempt income and one-off asset sales. Also, the ‘rolling 12-month period’ isn’t based on the tax year or calendar year. Instead, you must continuously monitor your turnover month by month.

For example, if your turnover from June one year to May the next exceeds £90,000, you’ve crossed the threshold, even if your annual total for the calendar year is lower.

This rolling calculation can ‘catch out’ businesses that are growing quickly, so you need to keep a close eye on your numbers throughout the year.

✨ Fun fact: The UK’s VAT registration threshold sits at £90,000, which is relatively high compared to the rest of the world. In fact, it’s higher than in any EU country and among the highest in the OECD, alongside Switzerland, at more than double the average.

It means most small businesses in the UK don’t have to deal with VAT at all.

Still, you can register your business for VAT even if it’s below the threshold. Many businesses do so to reclaim VAT on expenses or to appear more established.

Registering early can also be a smart move if your business is growing and likely to cross the threshold soon.

What is the threshold for MTD for Income Tax?

You’ll need to follow MTD for Income Tax rules if all of these apply to you:

• You’re a sole trader or a landlord who files a Self Assessment tax return
• You earn money from self-employment, property, or both
• Your qualifying income is over the threshold for the relevant tax year

Qualifying income is the total money you earn in a tax year from self-employment or property income, such as renting out a house or flat.

If you’ve got more than one business or multiple rental properties, it all gets added together to give you one total figure.

Not all income reported through Self Assessment counts towards your qualifying income.

These things don’t count:

• Your salary from a job (PAYE)
• Your share of profits from a partnership as an individual partner
• Dividends, including money you take from your own company
• Your state pension
• Any private pensions

Only your self-employment and property income matter for MTD thresholds. Everything else might still be taxable, but it won’t push you over the limit for MTD.

When do you need to start with MTD?

The start date depends on how much you earn, and HMRC will introduce it gradually.

• If your income is over £50,000 in the 2024–2025 tax year, you’ll need to start using MTD from 6th April 2026.
• If it’s over £30,000 in the 2025–2026 tax year, you’ll start from 6th April 2027.
• If it’s over £20,000 in the 2026–2027 tax year, the government plans to bring you into MTD too.

So, the higher your income, the sooner you’ll need to make the switch.

Keep in mind that you don’t have to start using MTD for Income Tax until after you’ve submitted at least one Self Assessment tax return. However, you can sign up early to get used to the system, which can make the transition much smoother.

When can you be exempt from Making Tax Digital for Income Tax?

If you are exempt, you won’t need to use MTD, but you’ll still need to report your income as usual through a Self Assessment tax return.

There are two main ways exemptions work:

1. Automatic exemptions

HMRC will sort this out for you automatically and use the information from your 2024–2025 tax return if:

• You’re earning £20,000 or less
• You don’t have a National Insurance number
• You’re filing on behalf of a non-resident company
• You’re acting as a trustee, including charities or certain pension schemes
• You’re a personal representative handling tax for someone who has passed away

These are the so-called permanent exceptions, and they last until your circumstances change.

Also, you won’t need to use Making Tax Digital for Income Tax until at least the 2027–2028 tax year if your 2024–2025 tax return included any of the following:

• Averaging relief – common if you’re a farmer or a creative artist with fluctuating income
• Qualifying care relief – for example, if you’re a foster carer or kinship carer
• The SA107 form to report income from trusts or estates
• The SA109 form you expect to use again for the 2026–2027 tax year

These are the so-called temporary exceptions, and they last until April 2027 at the earliest.

2. Exemptions you need to apply for

You could qualify to be exempt if you’re digitally excluded, meaning it’s not practical for you to use online tools or software.

You could qualify if, for example:

• Your age, health, or a disability makes using a computer, tablet, or smartphone difficult
• Your religious beliefs don’t allow the use of digital technology
• You can’t access the internet where you live or work, and there’s no practical alternative nearby

If HMRC has already confirmed that you’re digitally excluded from sending VAT returns using MTD-compatible software, you should get in touch with Self Assessment: general enquiries to sort out your Income Tax status.

If nothing has changed, HMRC will confirm that you’re also exempt from MTD for Income Tax. On the other hand, if your circumstances have changed, you’ll need to apply for a new exemption.

If your exemption from MTD for VAT is because you’re going through an insolvency procedure, and you’re signed up for MTD for Income Tax, you aren’t exempt.

In that case, you’ll need to continue using MTD for Income Tax as usual.

✨ Good to know: Once you start using the service and your qualifying income drops below the relevant threshold for three tax years in a row, you can choose to opt out of MTD.

How to apply for an exemption?

To apply for an exemption, you’ll need to contact HMRC directly, either by phone or mail.

Make sure you have the following details ready:

• Your VAT registration number
• Your business name and address
• How you currently submit your VAT returns
• A clear explanation of why you believe you should be exempt
• If you’re applying for someone else, you’ll also need authorisation

While HMRC reviews your application, continue submitting your VAT returns as usual. Once they’ve made a decision, they’ll send you a letter. If your exemption is approved, they’ll explain exactly how you should continue filing your VAT returns going forward.

How can ANNA help you get MTD-ready?

ANNA is an HMRC-recognised, all-in-one software that registers your business, creates, sends, and chases invoices, handles your bookkeeping, and files your VAT, Corporation Tax, and MTD Self Assessment.

Here’s what ANNA includes:

✨ Built-in UK business account: It comes with debit cards and seamless transfers, so all your finances are connected.

✨ Smart invoicing: You can create, send, and chase invoices automatically, with automatic payment matching, making sure nothing slips through the cracks.

✨ Automated bookkeeping: ANNA sorts your transactions and matches them to invoices and receipts so your books are always tidy.

✨ Tax calculation & reminders: You’ll get real‑time estimates of what you owe for VAT, Corporation Tax, and Self Assessment. You will also get reminders, so you never miss a deadline.

✨ Tax filing to HMRC: ANNA can prepare and file your VAT returns, Corporation Tax, and Self Assessment directly with HMRC.

✨ Pots that save for tax: Smart tax pots help you set money aside automatically so you’ve got the cash ready when bills are due.

✨ Bookkeeping Score: ANNA gives you small tasks, such as categorising receipts, to boost your bookkeeping quality and find potential tax savings.

✨ Profit & loss reports: You can see how your business is performing and track progress with monthly updates.

Handling taxes is already complex enough, but ANNA’s app is built for business owners, making it easy to use at a fraction of the cost you’d pay otherwise.

💥 File your MTD Self Assessment for FREE

For the first year, we provide a free MTD Self Assessment for Income Tax and your 2025–26 filing free, too! If you've already filed your 2025–26 return with another software, we’ll refund the cost of that account, just as a little welcome bonus for joining us.

Start with ANNA today to stay ahead of Making Tax Digital with stress-free bookkeeping and tax filing.

FAQ:

1. What does Making Tax Digital mean for my Income Tax?

It means you’ll need to keep your self-employment and property income in digital records and submit your tax information using MTD-compatible software.

It will make filing and reporting simpler and more accurate.

2. What do I actually have to do to comply with MTD?

You need to keep your income and expenses in digital records and use HMRC-approved software to submit quarterly updates and your annual tax return.

You should track your self-employment or property income carefully and make sure your software is MTD-compatible.

3. How much income do I need before I have to start MTD in April 2027?

For the 2026–2027 tax year, MTD applies if your qualifying income from self-employment or property is over £20,000.

Only self-employment and property income count toward this threshold, so your salary, dividends, or pensions don’t push you over the limit.

If you’re under that, you don’t need to join yet, but you can sign up early to get used to the system.